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# Interest Rates and Present Values

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Calculating Interest Rates (Example)

How do you determine the annual interest rate?

Present Values Future Values Time Period
_____________________________________________________

100 115.76 3-years

200 262.16 4-years

100 110.41 5-years

Coca-Cola (Example)

In 1995 coca-cola enterprisees neede to borrow about a quater of a billion dollars for 25-years. It did so by selling IOUs, each of which simply promised to pay the holder \$1,000 at the end of 25-years. The market interest at the time was 8.53-percent. How much would you have been prepared to pay for one of the company's IOUs?

PV=\$1,000 X ___1_____
(1.0853)25

Can you please explain this equation step by step? Also, were does the 25 fit in??
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(See attached file for full problem description)

#### Solution Preview

COMMENT FROM STUDENT:
Great, but I still need to know how you utilize the 25 ...

#### Solution Summary

The solution explains how to calculate the implied interest rate given the present value, future value and the time period

\$2.19